Estimating The Fair Value Of Stanmore Resources Limited (ASX:SMR)

Stanmore Resources Limited (ASX:SMR) is an Australian-based resources company with operations and exploration projects in the Bowen and Surat basins. With a market cap of AUD 2.38 billion and an enterprise value of AUD 2.79 billion, the company's valuation is a crucial factor for investors. This article aims to estimate the fair value of SMR by analyzing its key financial metrics, earnings growth rate, profit margins, and valuation multiples.

1. Key Financial Metrics: SMR's key financial metrics include:
* Revenue: AUD 3.81 billion
* Gross Profit: AUD 3.16 billion
* Operating Income: AUD 621.25 million
* Pretax Income: AUD 571.94 million
* Net Income: AUD 402.28 million
* EBITDA: AUD 934.05 million
* EBIT: AUD 621.25 million
* Earnings Per Share (EPS): AUD 0.45
2. Earnings Growth Rate and Profit Margins: SMR has an earnings growth rate of -43.0% and a profit margin of 10.57%. These factors impact the company's fair value and valuation multiples. The negative earnings growth rate indicates declining earnings, which can be attributed to the company's revenue growth rate of -7.8% and the expected decline in EPS of -43.9% per annum. The low profit margin suggests that the company is less efficient in generating profits from its revenue.
3. Valuation Multiples: SMR's valuation multiples, such as the P/E ratio, P/S ratio, and P/B ratio, are influenced by its earnings growth rate and profit margins. The P/E ratio of 5.93 is relatively low compared to the industry average of 13.4x, which can be attributed to the company's negative earnings growth rate and low profit margin. The P/S ratio of 0.63 and P/B ratio of 0.88 are also relatively low, indicating that the company may be undervalued compared to its peers.
4. Analyst Price Targets and Consensus Estimates: Analysts' price targets and consensus estimates play a significant role in the fair value calculation for SMR. As of the latest data, SMR has a consensus EPS estimate fall by 11% on January 22, 2025, indicating a decrease in analysts' expectations for the company's earnings. This is a significant change from the previous increases in consensus EPS estimates, which ranged from 10% to 21% between September 3, 2023, and October 10, 2023. The statistical confidence in these targets can be evaluated by considering the number of analysts providing estimates and the consistency of their forecasts. In the case of SMR, 13 analysts cover the company, with 4 of them submitting estimates of revenue or earnings used as inputs to the report. This relatively low number of analysts providing estimates may indicate a lower level of statistical confidence in the consensus targets.
5. Impact of Earnings Growth Rate and Profit Margins on Valuation Multiples: SMR's earnings growth rate and profit margins have a significant impact on the company's fair value and valuation multiples. The negative earnings growth rate and low profit margin can lead to a decrease in the company's fair value and valuation multiples, making it less attractive to investors. However, the company's low valuation multiples may indicate that it is undervalued compared to its peers, and investors may see an opportunity to buy the stock at a discount.

In conclusion, estimating the fair value of Stanmore Resources Limited (ASX:SMR) involves analyzing the company's key financial metrics, earnings growth rate, profit margins, and valuation multiples. While SMR's negative earnings growth rate and low profit margin may indicate a decrease in the company's fair value and valuation multiples, its low valuation multiples may suggest that it is undervalued compared to its peers. Investors should consider these factors when estimating the fair value of SMR and make informed investment decisions.